AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 152
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....ents/e-mails and in various statements of Sh. Ajay Kalsi/Sh. Anil Aggarwal u/s 134(4) have admitted that the taxability of these companies lies in India and these companies are resident for the tax purposes u/s 6 of the IT Act. 2. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring that underlying assets and sources of revenue of all the overseas companies in which assessee is shareholder/ beneficial owner are the Indian Companies. 3. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the substantial evidence in form of seized material, E-mails, Share Holding pattern showing the ultimate control and management of Indian companies and overseas companies lies with Sh. Ajay Kalsi, Sh Anil Aggarwal and Smt. Mala Kalsi, who have created different verticals of corporate veil under them to avoid taxability in India. 4. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the provisions of section 9(1) of the I.T. Act as the revenue has been earned because of underlying assets of the assessee wholly and totally situated in India. ....
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....dded to the income of the appellant on "protective basis" on the ground that none of the overseas companies had admitted to be in the jurisdiction of the Indian tax laws and therefore, in order to protect the interest of revenue income of all those overseas companies for the assessment year 2006-07 was assessed in the hands of the appellant on "protective basis", and an addition of the same segregated amount was made in the hands of the respective overseas companies on "substantive basis" in their assessments for respective year. It is pertinent to mention here that once an addition on "substantive basis" was made in the hands of the overseas companies treating them as "residents" in India u/s 6(3) of the IT Act, there was no reason or occasion or an issue to assess the same in the hands of the appellant on "protective basis" which evidences lack of clarity and confusion in the mind of the Assessing Officer. On perusal of the assessment order of the appellant, I find that the contents of the assessment orders in case of the overseas companies were reproduced in entirety in complete form in toto, in the case of the appellant also. There is no issue relevant to the income of....
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....s had made elaborate and independent inquiries from the various overseas Foreign Tax Authorities through FT&TR Division of CBDT regarding the affairs of these overseas companies. From the details on record, which were provided by the respective Foreign Tax Authority, it was evident, that the overseas companies were incorporated according to the prevalent laws of the respective countries and complied all statutory provisions. I also perused the information provided by these Foreign Tax Authorities and none of them reported any doubtful or illegal existence of these companies. It is also relevant and pertinent to mention here, that while assessing the overseas companies, in the assessment orders of respective overseas companies, the Assessing Officer had himself admitted in para 5.9 as under: "5.9 The assessee's claim that it is registered outside India according to law of our own country i.e.........., is not challenged by the department and is accepted." 8.1.4 From the aforesaid admission by the Assessing Officer, it is evident that he accepted the status of the overseas companies as "not resident in India". In para 5.10 of the assessment order in respect of o....
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....d overseas companies, the TPO, New-Delhi did not make any adverse inference and did not propose any adjustments. 8.1.6 Therefore, the reference made to the Transfer Pricing Officer and the orders passed by him in pursuance of such reference clearly establishes the fact that:- i) The overseas companies are separate, independent and genuine entities ii) The transactions between the various companies are genuine transactions. iii) That the transactions between the various companies was carried out at an arms length price. iv) That not a single case of diversion of profit of the Indian entities to overseas entities was found neither by the TPO nor the Assessing Officer. 8.1.7 In view of the material on record and discussion thereto, there is no merit or basis for the Assessing Officer to lift the corporate veil on any ground or to make an allegation while assessing the appellant's case that profit of the Indian entities was transferred to the overseas companies and that such overseas companies were incorporated with a purpose to avoid transferring audit. The Assessing Officer did not allege that the appellant transferred undisclosed....
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.... was added in case of these overseas companies was categorically vouched and admitted by the Assessing Officer as belonging to the overseas companies, which was evident in para 19 of the assessment order as under: "19. Therefore in view of the aforesaid discussion, facts on record, seized document's, statements recorded during search proceedings u/s 132, post search proceedings and assessment proceedings, correspondence reflected in e-mails and information gathered during assessment proceedings including is specific inputs received from Foreign Tax Authority in UK, BVI, Cyprus and Mauritius as discussed in detail in the above para's it is held that the income of overseas companies are liable to be tax in India under the provisions of section 6(3)(ii) of the I.T.Act, 1961 since overseas companies are treated as company resident in India for the reason that control and management of its affairs is wholly situated in India." 8.1.9 In view of the aforesaid position concluded by the Assessing Officer for making "substantive addition" in case of the overseas companies, I do not find any valid reason for the Assessing Officer to make a similar addition on "protective....
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.... where the appellant derived some kind of income from these overseas companies and no payment of taxes thereon was avoided or evaded by him in India. 8.1.13 In para 21.2.1 of the assessment order, the Assessing Officer mentioned that real business activity was carried out only in two main companies of the group, namely M/s Focus Energy Ltd. and M/s Granada Services Pvt Ltd. Although, this conclusion of the Assessing Officer is totally out of context, so far as the case of appellant is concerned, yet It is not understood as to how, and on what basis the addition can be made in the case of appellant without bringing any evidence to support it. It is pertinent to mention here that the Assessing Officer also was the Assessing Officer of the Indian entities namely Granada Services Pvt. Ltd. and Focus Energy Ltd. and without bringing an adverse material on record in case of the appellant, the Assessing Officer was not justified in making such self contradictory and baseless allegations. Further, the income from the oil and natural gas blocks and BPO business was offered to tax by the respective companies in their income tax returns and therefore, the allegation of the Assessing ....
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....ore, it is inconceivable that any addition of any such non-existing income can be made. It would not be out of place to highlight that the undersigned hasn't received any benefit from any of the foreign companies mentioned in your captioned notice, except what has been disclosed in my return of Income. There is absolutely no basis/material even to suggest that undersigned has received any benefit or earned income which is not disclosed. At the cost of reiteration, it is stated that the conclusion drawn is factually wrong and legally unsustainable. Further, I would like to bring on record the surrounding circumstances and the manner in which the statements were recorded. It would be imperative to highlight that the search operations which started on 22.03.2012 and continued for consecutive period for 3 days & nights (wherein, it was evident that entire search operation was carried out with pre¬determined bias that the various non-resident foreign Companies ought to have paid taxes in India. It is a matter of record that I was kept awaked whole night and day, which itself suggests the constrictive environment in which the statements were recorded). In this back drop the ....
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....uthorized officer at the undersigned's residence i.e. at S-71 G.K.II, was not correct. However, the copy of this statement dated 22.03.2012 has not been provided by your good office. You are requested to provide the copy of the same. Even after the above mentioned statement at S-71, G.K.-ll, I was again asked to give statement time and again; the predetermined motive of the search party being to get written what they wanted. Tls can be seen that the search started on 22.03.2012. The statements were recorded on 22.03.2012 and also on 23.03.2012 and further on 24.03.2012. The search party left the premise only on 24.03.2012 after taking written such contents as they wanted. The answers taken written to questions allegedly containing the so called confession /admission of taxability of income is almost identical to the statement recorded of the undersigned and Mr. Ajay Kalsi. You will appreciate that it is not even remotely probable that two persons will give similar answers in similar language. This clearly establishes that the search party was predetermined to get the answers what they wanted. In your captioned notice you have reproduced the following ....
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.... any tax liability arising in any of my own company is my sole liability for the same. I may be treated as the representative assesse of EICR & Wickwood. Q6. It is seen that some of the companies like M/s SDP services Ltd., M/s Wickwood development Ltd. and M/s Rolland Enterprises Ltd, M/s 3 phase Engineering ltd all registered in BVI but working under your control and management. Please furnish explanation? Ans. I agree of first 3 companies are owned by me, Wickwood and Rolland directly and SDP through Wickwood. I along with Sandeep Rastogi and Rajiv Gujral are Director for these 3 companies. However, all the decisions and activities are controlled and take exclusively by me in India. Therefore, I confirm that any resulting tax liability on the income of these 3 companies and should be taxed in India. I may be treated as representative assessee of these 3 companies and I stand surety for the payment of taxes for the same. Regards of 3 Phase Engineering I have to verify the facts regarding ownership and I will revert back on the same. Q7.) Please furnish the list of all other overseas entities along with their nature of activities, managed and co....
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....a for tax purpose under section 6 of Indian Income tax Act 1961 since incorporation. c. ) SDP services Ltd. BVI- This company was incorporated in 1998 in BVU with 100% shares being held by Geophysical Substrata Ltd. since 2008. Control and management of this company is exercised by me wholly and exclusively by me from India since the incorporation of the company and till date. The company earns income by way of lease of Drilling Rigs, Seismic Equipments and other oil exploration equipment to Focus energy Ltd. I will be providing the books of accounts, bank accounts of this company since the company incorporation as the control and management over this company is exercised in India wholly and exclusively from India. I agree that this company becomes resident in India for tax purpose under section 6 of Indian Income tax Act 1961 since incorporation. The company will be liable to tax on its income and I am liable to pay tax in India, I will be filing the return of this company for all the A.Y. in the status of resident and pay tax. I will be paying tax as soon as possible and definitely within the period of 12 months. I will be submitting the plans of installments. d....
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....hat these are resident for tax purpose under sec. 6 of Indian Income tax Act since incorporation. I will be filing the returns of these companies for all the A.Ys. in the status of resident and pay tax due on any income of these companies. From the afore-stated extracts, it is abundantly clear that the statement had been taken by the search party in a preemptive manner and coloured by their own predetermined bias, in total ignorance of correct factual positions and law. After Q.2 & Q.3, all of a sudden, in immediately next Q.4, it has been taken written that based on answers to Q.2 & Q.3, certain amount will be my income. As is evident from the Q.2 & Q.3, there is no basis to allege or infer that there is some taxable income. The subsequent questions and answers No.4 to 8 are all stated to be based on the contents of Q.2 & Q.3. There is nothing in answers to Q.2 & Q.3 which can be made basis of drawing adverse inference. Further as per answers to Q.2 & Q.3 (which is made the basis of subsequent questions and answers) it is established that none of the foreign companies mentioned in those questions can be held to be controlled or managed from India. In Q.4 and answer theret....
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....h have been bestowed upon him, in a most fair and appropriate manner. Rules of fair hearing and reasonableness would only suggest that the factual position regarding the control and management of foreign companies should be verified and corroborated with the respective foreign companies. In addition to the above, it is indeed appalling that the adverse conclusions have been drawn by your good office, on a wrong and baseless construal of the undersigned's friendship with Mr. Kalsi. Nonetheless, any adverse inference drawn in this regard may, in the interest of justice, best be corroborated with Mr. Ajay Kalsi. At this juncture, it is important to mention that the connotations used by your good office in the subject notice, such as "Control and Management", "Beneficial Ownership", "Representative Assessee" and other legal provisions of the Act such as Section 277 and 278, can best understood by legal experts having extensive and vast knowledge. Needless to mention, the statements recorded during the course of search proceedings do require careful consideration before reliance placed thereupon. Any such reliance upon statements itself shall acts as preju....
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....d upon by the Assessing Officer and find that the facts of those cases are distinguishable to that of the appellant. On perusal, I find that the Assessing Officer misapplied the ratio of the judgement of MC Dowell & Co. Ltd. to the appellant's case, as the Assessing Officer did not establish any case where the appellant adopted a colourable device and most importantly no case of any tax evasion was established by the Assessing Officer in case of the appellant or overseas companies. 9.1.0 The Assessing Officer's reliance on the judgment in the case of CIT Vs. Sri Meenakshi Mills Ltd. 63 ITR 609 (SC) is not applicable to the facts of the appellant's case. In aforesaid case which was relied by the Assessing Officer upon by Assessing Officer , the company borrowed an exorbitant amount of money from the Indian branches of Bank A based on the fixed security deposits made in other branches of Bank A in a non-taxable territory. Further the director of the assessee-company was also the main share holder of the Bank A. During the assessment proceedings, the Assessing Officer treated the entire profits of the assessee company, including interest from the non-taxable territory in the ....
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....the appellant's case. The Assessing Officer made vague references to these case laws without pointing out and establishing as to how the same were applicable to the facts of the appellant's case. Hence the facts of the case laws referred by the Assessing Officer are entirely different from that of the appellant's case. In the cases relied upon by the Assessing Officer, it was established that the transactions were sham, and were undertaken with a purpose to evade taxes and on applying the doctrine of lifting the corporate veil, these transactions were found to be fraudulent, sham, circuitous and s device to defeat the interest of various stake holders. 10. In the instant case, the Assessing Officer did not bring on record such adverse facts that established fraud, circuitous or sham transactions as in the cases mentioned by Assessing Officer in the order. The only allegation of the Assessing Officer for drawing an adverse inference in case of the appellant is that the purpose for which the companies were incorporated overseas in tax havens was to avoid transfer pricing audit and consequent avoidance of tax. However, this was merely a doubt and allegation of Assessing Offic....
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....s were made on protective basis in their hands. In case of Smt Mala Kalshi the coordinate bench has already decided the issue deleting the above addition on protective basis as per order dated 1st December 2017 reported in 90 Taxmann.com 175 (Delhi). Further, in case of Shri Ajay Kalsi the coordinate bench has deleted the above addition as per order dated 05.12.2018 for Assessment Year 2006-07 to 2012-13. Therefore, the issue is now squarely covered in favour of the assessee by the above addition. The ld DR could not cotrovert the above fact that the issue is squarely covered by the decision of the coordinate bench in case of other share holders. In view of this fact respectfully following the decision of the coordinate bench where identical additions were deleted, we also direct the ld AO to delete the above protective additions of Rs. 227481323/- in the hands of the assessee for Assessment Year 2006-07. Therefore, the appeal filed by the assessee for Assessment Year 2006-07 is allowed. 9. The assessee is also raised cross objection in the above appeal. In the cross objection the assessee has challenged certain jurisdictional issues and further additions made u/s 153A of the Ac....
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....f the ld AO are dismissed. 14. Ground No. 7 of the appeal is with respect to the deletion of the addition of Rs. 6950000/- on account of unexplained cash. The ld AO has made the above addition as during the course of search u/s 132 at the premises of Shri Anil Agarwal, cash of Rs. 69.50 lakhs and jewellery of Rs. 2546789/- were found. At the time of search, Shri Anil Agarwal admittedly owned the cash and jewellery both. However, regarding the source of cash and jewellery nothing was explained by Shri Anil Aggarwal addition was made in the hands of the assessee by applying the provisions of section 292C of the Act. Thus, the ld AO made the addition of Rs. 6950000/- and jewellery of Rs. 2546789/-. The assessee challenged the same before the ld CIT(A). The ld CIT(A) deleted the addition on account of cash found of Rs. 6950000/- as Shri Atul Aggarwal brother of the appellant surrendered the above cash in his hands and declared the same in the return of income filed by him for Assessment Year 2012-13 which was assessed u/s 143(3) dated 18.04.2014. As the above amount was already taxed, it amounted to double addition in the hands of the assessee as well as Mr. Atul Aggarwal. Further, ....